WESTPORT INNOVATIONS INC. Presented by: Simon Fraser University March 5, 2011 Content 2 Section Overview.……………………………………………… 1 Positive Drivers.....…………………………………. 2 Negative Drivers…….…………..………………….. 3 Valuation………….…………………………………… 4 Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Recommendation 3 TSE: WPT Overview Report Price Target Price Positive Drivers as of December 3, 2010 Negative Drivers $19.30 $16.38 Valuation HOLD Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Westport Innovations 4 Formed in 1995, headquartered in Vancouver, Canada Overview Over 400 patent applications worldwide with over 200 issued patents 186 employees with 7 partners across the globe Positive Drivers Negative Drivers Valuation Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Natural Gas Engine Technology 5 Overview Positive Drivers Negative Drivers Valuation Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Joint Ventures & Partnerships 6 Juniper Engines Overview Cummins-Westport Westport Positive Drivers Innovations Inc. Westport HD Negative Drivers Weichai-Westport Valuation Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Equity Financing 7 Overview Positive Drivers Negative Drivers Increase to Share Capital ($M) Valuation 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Strong Foundation 8 Overview Positive Drivers Partnerships Negative Drivers Valuation Management Balance Economics Sheet Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Forecasted Fuel Prices 9 Delivered Transportation Fuel Prices, 2000-2035 Overview 4 Positive Drivers 3 Diesel fuel Negative Drivers 2 Valuation 2008 USD 2008 Natural gas 1 History Projections 0 2000 2008 2015 2025 2035 Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Government Incentives 10 USA China Overview Positive Drivers Income tax credits for Consumer rebates for natural gas re-fuelling alternative fuel equipment vehicles. Negative Drivers Excise tax credit to CNG Vehicles listed as Valuation seller of CNG or LNG encouraged industry NAT GAS Act? Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Strategic Partnerships Overview Global Engine Global Truck Producers Producers Positive Drivers 1. Weichai 1. Daimler Negative Drivers 2. Volvo 2. Volvo 3. Daimler 3. Dongfeng 4. Cummins 4. Tata Valuation 5. CNHTC 5. FAW Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Weichai Westport Inc. Overview Positive Drivers Negative Drivers Valuation Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Adapting Business Model 13 Westport HD Diesel Overview Pmt Per month $4,000 $2,400 Maintenance Cost 0.115 0.085 Positive Drivers Per mile Annual mileage 100,000 100,000 Negative Drivers Fuel Cost $2.10/DGE $3.60 Per month: Valuation Fuel (at 5 mpg) $3,500 $6,000 Lease charge 4,000 2,400 Operating charge 958 708 TOTAL $8,458 $9,108 Savings $650 / month Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Management 14 Overview Executive Auto Mining Positive Drivers Politics Startup Finance John Beaulieu (Chairman) Negative Drivers David Demers (CEO) William Larkin (CFO) Valuation Elaine A. Wong (EVP - Strategy) Nicholas C Sonntag (EVP – Marketing) Darren Seed (VP) Melih Ogmen (VP) W Chipman Johnston (Secretary) Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Sound Balance Sheet 15 Overview Positive Drivers Cash Negative Drivers ready Net for new Valuation Cash: ventures $73 M and Risk research averse Strong liquidity Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. High Uncertainty 16 Overview Enough Is there a fueling market? stations? More Positive Drivers reliable than Will diesel Negative Drivers companies What is the engines? adopt it? future of Westport? Valuation Too expensive ? Difficult to value Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Market Resistance 17 Overview Price Positive Drivers Negative Drivers Psychology Valuation Reliability Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Technical Complexity 18 Natural Gas Engine Diesel Engine Overview Positive Drivers Negative Drivers Valuation Double the price Less power and torque Requires special parts Requires more maintenance Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Infrastructure Limits 19 Overview Positive Drivers Negative Drivers Valuation Source: DOE as of September 16, 2010 Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. R&D Costs and IP Risk 20 Overview Positive Drivers Negative Drivers Valuation Source: Westport Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Valuations 21 Overview $30 $16.38 $25 24.18 Positive Drivers $20 Negative Drivers 17.31 16.81 17.40 $15 14.09 Valuation $10 9.37 7.16 $5 3.79 4.71 $0 P/S EV/S FCFF Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Comparable Companies 22 Market Cap Overview Company Name EPS P/E P/S EV/Sales ($M) Woodward Inc. 1.49 2,556.34 24.89x 1.75x 1.78x Positive Drivers Clean Energy Fuels Corp. -0.27 958.1 - 5.61x 5.17x Fuel Systems Solutions Inc. 3.39 626.61 10.49x 1.23x 1.25x Negative Drivers China Automotive Systems Inc. 1.09 403.75 13.66x 1.23x 1.32x Hydrogen Engine Center Inc. -0.11 2.42 - 1.78x 4.28x Valuation 3/5 Averages 909.45 16.35x 2.32x 2.76x Positive Westport Innovations Inc. -17.88 903.96 - 6.26x 4.70x Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Value Driver – Revenue Growth 23 450,000 Overview 400,000 350,000 Positive Drivers 300,000 250,000 Service revenue 200,000 Negative Drivers Parts revenue 150,000 Product revenue 100,000 Valuation 50,000 0 CWI accounted for 92% of Westport’s total revenues in 2010 Wildcard projects include Weichai-Westport, Volvo Powertrain Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Product Revenue 24 10,000 $35.00 Overview 9,000 $30.00 8,000 7,000 $25.00 Positive Drivers 6,000 $20.00 5,000 4,000 $15.00 3,000 $10.00 Negative Drivers 2,000 $5.00 1,000 - $0.00 Valuation Units shipped Unit price Forecasted 20% annual growth in units shipped from 2011 – 2015 Unit price growth driven by refocus on HD segment Disclaimer: This information is provided to you for informational purposes only and is intended Simon Fraser University | March, 2011 for use only by the Global Investment Research Challenge. Cash Flow 25 Operating Cash Flow Overview 30,000 20,000 Positive Drivers 10,000 Negative Drivers 0 2006 2008 2010 2012e 2014e -10,000 Valuation -20,000 -30,000 Operating cash flow to break-even by 2013 Disclaimer: This information is provided to you for informational purposes only and is intended